What is the payback period of each project

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Reference no: EM133556191

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Consider the cash flows for the following three projects: A, B, and C.

I. What is the payback period on each of the above projects?

II. Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept? Why?

III. If you use a cutoff period of three years, which projects would you accept? Why?

IV. If the opportunity cost of capital is 10%, which projects have positive NPVs? How do you know?

V. "If a firm uses a single cutoff period for all projects, it is likely to accept too many short-lived projects." Is this statement true or false? How do you know?

VI. If the firm uses the discounted-payback rule, will it accept any negative NPV projects? Will it turn down any positive NPV projects? How do you know?

VII. If the opportunity cost of capital is 11%, and you have unlimited access to the capital, which one(s) would you accept? Why did you answer the way you did? Would your response change if the cost of capital is 16%? Why or why not?

VIII. Suppose that you have limited access to the capital and you need to choose only one project. Which one would you choose and why? The discount rate is still 11%.

IX. What is the payback period of each project? Analyze if, in general, a decision based on payback is consistent with a decision based on NPV.

X. What are the internal rates of return (IRR) on the three projects? Does the IRR rule in this case give the same decision as NPV? How do you know?

XI. If the opportunity cost of capital is 11%, what is the profitability index for each project? Analyze if, in general, decisions based on profitability index are consistent with decisions based on NPV.

XII. What is the most generally accepted measure to choose between the projects? Justify your answer.

Reference no: EM133556191

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